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Financial markets remain volatile as inflation data continues to point toward further increases in interest rates by global central banks. This week, companies continued to report third quarter results with several firms reporting positive earnings surprises. However, on a year-over-year basis, companies in the S&P 500 are reporting their lowest earnings growth since the third quarter of 2020. The effects of higher inflation are apparent in overall corporate profits thus far.

At the top of global news this week, the United Kingdom’s Prime Minister Liz Truss announced her resignation as the rapidly expanding chaos surrounding her government proved too much of a burden to effectively lead the UK out of the political and financial morass in which it finds itself. Following credibility-sapping U-turns on September’s mini-budget, enforced cabinet reshuffles, and plunging personal and party opinion poll readings, Thursday’s statement of resignation came as little surprise to financial markets. Initial reaction to the news was mildly positive with gilt yields slightly lower and the pound a little firmer. Key for financial markets is whether Conservative MPs can unite sufficiently to agree on a new leader and provide some stabilization for the world’s sixth largest economy.

Market volatility intensified this week as global central banks acted to maintain financial stability. The Bank of England intervened to avoid a crash in the gilt market following the surge in bond yields triggered by the government’s proposed unfunded tax cuts. The central bank suspended quantitative tightening and instead pledged unlimited purchases of long-dated bonds to restore market functioning and reduce credit contagion risks. Yields fell dramatically across the curve in the US and UK bond markets. This followed the Japanese government’s intervention last week, with purchases of yen in an effort to support the exchange rate while the central bank maintained ultra-low interest rates.